The concept of the future digital eco-system is fuelling a lot of conjecture. Some of it well-founded, other parts not so much.

Donald Rumsfeld, the former US politician, famously captured many senior people’s sentiment when he pointed out, ”there are known knowns… there are known unknowns…but there are also unknown unknowns — the ones we don’t know we don’t know.”

We need to understand what the end-game (or more accurately perhaps the infinite end-game) looks like.

I see an open banking ecosystem, with different participants jostling to provide consumers with the services (financial and non-financial) that they value. In this re-calibration of the roles of providers, distributors and facilitators the age-old question of who owns the key to the customer interface will play an important part.

Digital experience

There are a couple of areas I would submit for consideration. The first is the digitisation (or digitalisation) of the client experience.

Banks, specialist lenders and building societies are investing heavily in their digital experience for consumers and even more so for brokers. Many are in the process of replacing legacy channels with next-generation digital solutions leveraging the latest technologies. It is a nettle that must be grasped.

Leaders in this field are investing heavily in content and value-added services to ensure the stickiness of their new platforms. It is a customer strategy that underlines the value of being the architect of the customer’s experience.

integration

The second is the future role of financial integrators. There is a raft of nascent organisations that integrate a customer’s array of banking relationships into a single place and enable the seamless movement of money according to criteria such as interest rates.

If this model succeeds in the longer-term then the threat for lenders is that these new businesses continue to extend into financing and leverage their dominant position to provide services in which multiple banks (and perhaps even non-banks) merely provide functional financing options.

Selecting the right approach in the face of this volume of change is difficult if you fail to understand that disruption for disruption’s sake offers no value.

Where disruption addresses a need, the threats and opportunities are very real.  The tech landscape is littered with examples of good ideas that have stalled in their original incarnations but, upon reinvention and re-application may ultimately offer compelling propositions.

The right partnering strategy is critical if lenders are to move from their current tech to the latest innovation quickly and easily now and in the future.

The stakes are high. Regulation has provided a helpful barrier to entry to financial services but it is invariably product aligned or capital focussed.

The customer piece is still in play. New customer-facing entrants might lead to client attrition and margin pressure on some of the highest-margin products.

In the worst-case scenario, it could lead to disaggregation and disintermediation of the market and a shift in the balance of power to alternative owners of the client interface, who may very well absorb the remortgaging and even product switching markets.

The emotive nature of home-buying means I think it will likely not be commoditised in the same way that the simple re-financing of a home you already live-in will.

Managing relationships

Succeeding in a truly integrated digital banking ecosystem world will require a new set of capabilities, which are more common in other industries such as manufacturing than in today’s vertically siloed finance sector.

Banks will need partnership teams to manage relationships with third parties; investment in data management layers and APIs to seamlessly transfer data with third parties; dynamic pricing capabilities; and a more integrated approach to channel management.

Product and proposition people may well need to be more familiar with the latest tech offerings to support their work going forwards.

The strategy is not only understanding what is important to you but knowing how you can make the most of how you deliver your solutions going forward and bring your customers along with you.

Tim Hague is managing partner at Sagis